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Tuesday, April 30, 2013

When Visualizing Data, You Have to Fail to Succeed

by Jeff Bladt and Bob Filbin |

At 4:26 a.m. one morning last December, an email from our COO arrived in our inboxes. "Literally can't sleep — thinking about [your data presentation]..." As a data scientist, if your data causes co-workers to lose sleep, you've done your job, perhaps too well. The rest of the email outlined new strategies for member acquisition and engagement that will save our organization over $200,000. The inspiration? One map. It was a simple depiction of the U.S., which showed member engagement by city, but also hinted at the potential of segmenting our users in order to give them the right content at the right time.

Our data hasn't always prompted action. There have been plenty of times when it has hit the cutting room floor, even if the insights were technically valuable (they would save us money or acquire members). But data is only valuable if people are willing to act on it. Which means, as a data analyst, you've got to sell it.

Data visualizations are not art, they're advertisements.

Data presentations often feel like window-shopping — the data looks pretty, but co-workers aren't buying. This is especially true when people feel like they're at an art gallery looking at beautiful pictures rather than at a meeting discussing business problems. How do you make your data visually appealing, but also compelling enough that your colleagues are willing to spend their resources to act on it?

The world of product design points to two different approaches. The first is the "predictive" black-box approach: Build a big, fancy visualization in private, release it to the world in your presentation, and assume it will succeed. This rarely works. Data scientists are not often trained artists or designers who know exactly what their audience wants. The second, more successful tactic is an "agile" approach, similar to how restaurants use test kitchens: Create variations on a theme and see what sticks. This means crafting and testing ten different scallop dishes and recognizing that at best, one will make it to the menu.

Going with your first best idea is a high risk, low probability recipe for success. The sauce could be wrong, the portion size off, or the coloration may be unappetizing. Diners might love scallops, just not what you've created.

At most companies, failing is risky, because failure can be read as weakness. But here's a way to minimize risk: Make it part of your culture. We do that three ways at DoSomething.org:

We hold an annual event called "Fail Fest," during which staff members speak about what they learned from a failure while wearing a pink boa.

We test our content, including data visualizations. To create the one map that impressed our COO, we failed at least 10 times.

Ten failures for one success. Quantity over quality is a common strategy in the natural world. When a fern unfurls in spring, it releases hundreds of thousands of spores, the vast majority of which never take root — some are caught by the wind, others stray onto tree branches. Of those that reach soil and germinate, many are trampled, eaten, or starved. Only a few reach adulthood and start the process again.

The lesson from nature is simple: The more we try, the more we succeed, even if the quality of each subsequent attempt does not improve.

It's foolhardy to believe that your first best-effort attempt is going to be the right one. But producing many quality versions is resource intensive. So you've got to move from many possible versions to the right one in an efficient way.

Sequence development to save time.

We do this by sequencing development phases: First, we make prototypes. Second, we test them. Third, we go to production. Many of our prototypes are nothing more than sketches on a whiteboard. Often we test five versions of an idea on co-workers, see what resonates, and then create five robust versions of the best one. We minimize the risks inherent in making just one visualization, while effectively allocating time away from ultimately doomed iterations.

For our engagement visual, we knew our goal was to convey that user segmentation is valuable. But which variable should we show: age, gender, mobile carrier, city, or first name? To answer this, we created simple chart visualizations of all five like this one:

Instead of perfecting the form, we showed these basic mock-ups to co-workers. Their responses were clear: the city data resonated most. So the next step was to create five more visualizations with that data, fleshing out the form.

Here we struggled with questions like: Should we show data in a table, a bar chart, or on a map? Should engagement be represented by a two-color scale, or one? So again we created five rough versions, collected informal feedback from co-workers, and iterated quickly. In the end, we created 10 visualizations, but covered a multitude of possibilities.

Below is the rough visual that resonated most with colleagues — they responded to seeing our membership engagement by city in a real-world context, but had trouble seeing patterns in the data.

In our final visualization, we moved to a two-color scale to highlight relative differences in engagement between cities. We also added lists of the five most and least-engaged cities. The lists alone provide the insight; the map adds depth and credibility.

There are lots of ways to sequence development. But the end principle is simple: create more data visualizations than you need to show, because your first idea is unlikely to be your best. Even for this article, we pitched five headlines and synopses to HBR editors. We then wrote five versions of their favorite. So, this article is one of the best of 25 permutations.

Talent research is redefining the way companies identify and predict the core capabilities that make a data scientist successful.

Fifty-five percent of big data analytics projects are abandoned.

This surprising finding comes from a recent survey of 300 IT professionals, conducted by a company called InfoChimps.

The most significant challenge with analytics projects, according to the survey? Finding talent. Most (80%) of the respondents said that the top two reasons analytics projects fail are that managers lack the right expertise in house to “connect the dots” around data to form appropriate insights, and that projects lack business context around data.

Greta Roberts, CEO of Talent Analytics Corp. says that part of the reason there is such a skills shortage with data scientists is that the current job description, often the one floated by Thomas Davenport and D.J. Patil, doesn’t quite hit the mark.

“It’s over-specified,” said Roberts. “There is a null set of people that fit the entire description. They’re unicorns; you can’t find them. Or there are a very limited number of people that fit the criteria.

“When you review data scientist hiring criteria you’ll find mutually exclusive requirements,” Roberts continues. “They want charismatic communicators that are able to effectively present findings. At the same time, they want people to sit and work with data all day. These are two different types of people. Our data shows companies in fact split up these roles.”

In the October 2012 issue of Harvard Business Review, Davenport and Patil popularized the idea that data scientists have “The Sexiest Job of the 21st Century.” These folks, they suggest, can do it all: make discoveries, write code, understand their technical limitations while fashioning new tools, conduct academic-style research and communicate effectively.

Roberts isn’t so much criticizing the work done by Davenport and Patil — both are leading researchers in the area of data analytics — as she is expanding upon their definition of a successful data scientist. As a faculty member at the International Institute for Analytics where Davenport is a co-founder and research director, Roberts’s team conducted research to determine if there is a common “fingerprint” among all data scientists. They looked for characteristics that are different from skills, experience or education — traits that govern motivation, indicate creativity and drive success.

Roberts’ research showed that there is a clear, measurable fingerprint. Published in December 2012 — Roberts presented these research findings at Predictive Analytics World in mid-April — Benchmarking Analytical Talent outlines those characteristics that make up a data scientists, beyond education and skill set:

They have a cognitive “attitude” and will search for deeper knowledge about everything.

They are driven to be creative and will want to create not only solutions, but also elegant solutions.

They have a strong desire to “do things the right way,” and will encourage others to do the same.

They have an extremely high sense of quality, standards, and detail orientation, often evaluating others by these same traits.

They tend to be somewhat restrained and reticent in showing emotions, and may be less verbal at team or organizational meetings unless asked for input or if the topic is one of high importance from their perspective.

They may take calculated, educated risks — only after a thoughtful analysis of facts, data, and potential outcomes. They persuade others on the team by careful attention to detail, and through facts, data, and logic, not emotion.

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The findings, Roberts believes, can help organizations suss out qualified data scientists (or sales people, call center reps or other professionals) by identifying characteristics of raw talent, and then creating a benchmark that others can be measured against.

So what does this all mean for hiring managers? Perhaps more important, where are organizations getting it wrong?

“A popular approach is to hire for skills,” said Roberts. “You’re going to have a lot of failures if you just say ‘I need SPSS, R, SAS’ or some other skill. Business and technology are evolving so fast now. You need someone [who] is compelled to learn and keep up with what is new. So, it’s the curiosity to learn the skill that is the fingerprint. Not the skill itself.”

Creativity and curiosity, she says, are far more important than established skills.

Another misstep is not recognizing the difference between candidates being curious or just detail-oriented — both very different attributes. The way to determine the difference? Asking questions that get at curiosity.

Roberts also says organizations often focus too much on PhDs, a credential that may mean a candidate is more suited to research, rather than performing the required actions in a commercial setting.

Finally, HR managers should be aware that analytical professionals are just that — analytical. As a general rule, they are not likely to be charismatic and may not present well in an interview.

Organizing R&D for the Future

Though it’s vital to their futures, the art of collaboration is one that many research and development organizations have yet to master.

Executives from around the world agree that research and development is a global effort requiring collaboration. Yet many say their organizations must improve in this area — evolving from the predominantly centralized approach that’s prevalent today — to meet strategic goals. In other words, for today’s R&D organizations, there is a significant gap between knowing what to do and actually doing it.

In a 2012 McKinsey survey on R&D, we surveyed 1,283 executives representing a range of regions, industries, functional specialties, tenures and company sizes. (Note: To adjust for differences in response rates in different countries, the data were weighted by the contribution of each respondent’s nation to global GDP.) A vast majority of the executives surveyed — 80% — believed that the best way organizations can position themselves to meet goals is by establishing satellite units that operate — and collaborate — as a network. But only 63% of respondents said that their R&D organizations already include satellites.

Executives’ responses on the current state of R&D depict an increasingly global reality that is at odds with today’s organizational structures. Specifically, a plurality of respondents — 37% — said their current R&D organizations consist of a central function in a single location. To meet their collaborative goals in the next three to five years, more than half of respondents acknowledged that their organizations should employ a more decentralized model.

This overall preference for moving away from centralization reflects the reality on the ground: 38% of executives said their companies plan to increase offshoring of their global R&D activities. While there has been much recent discussion of companies bringing manufacturing activities and processes closer to home (to increase operating flexibility, for example), our results suggest that for many R&D organizations, the offshoring trend continues. In fact, just 18% of respondents said their companies’ “onshoring” of global R&D functions and processes will increase in the next three to five years, and only 24% said the same about “nearshoring” (bringing functions and processes closer to the company’s home base).

The Value — and Challenge — of Collaboration

Nevertheless, for the time being, collaboration is an art that many R&D organizations have yet to master. Of the executives responding to this question, less than half said their central functions and satellites collaborate very or extremely effectively. And less than one-quarter said the same about satellite-to-satellite collaboration — a requirement of the very model many want to move toward. If there’s a silver lining to these answers, it’s this: Respondents at larger organizations with at least six different R&D sites are the likeliest to say their satellites collaborate effectively. In our view, this suggests that structural moves away from the center may be the push for organizations to improve internal cooperation.

We asked survey respondents which capabilities were most important for fostering successful collaboration. Respondents most often identified collaborative mind-sets and greater transparency on R&D strategy as important capabilities for collaboration. Improved talent management also ranked highly among those respondents who said their satellites work well together. However, talent is an allocation issue as well. When executives identified the most significant challenge their R&D organizations face, the largest share — 40% — said that their key people are overextended and unavailable.

What “High Performers” Do Differently

As in surveys past, we identified a group of “high-performing innovators” — companies where respondents report higher organic growth than competitors and attribute a large portion of that growth to new in-house products. Not surprisingly, these high performers are far ahead of their peers in three key dimensions: collaboration, allocation of talent and capital, and the use of product platforms to drive speed to market.

For example, 31% of respondents at high-performing companies said their organizations already make product-related decisions collaboratively, compared with 20% of all other respondents. And while the results indicate that satellite-to-satellite communication — a critical dimension of achieving a globally networked model of separate R&D sites — is a challenge for most organizations, executives at high-performing companies reported more effective collaboration than everyone else. (See “Satellites Struggle to Collaborate.”)

SATELLITES STRUGGLE TO COLLABORATE

View Exhibit

In addition, the high performers’ resource moves are likelier to be proactive and directed toward defined growth opportunities, while their peers are likelier to increase budgets as a reaction to competitors’ moves. Executives at high-performing innovators also said their companies allocate additional resources to hiring.

Another area where the high performers stand out is speed to market. In the survey as a whole, more executives said their R&D organizations’ product strategies focus on creating shared product platforms rather than on developing local or standardized global products. At high-performing organizations, respondents more often reported that they use these platformed products now and plan to focus on them more in the coming years. The high performers are also ahead in their use of technologies and are more likely to either be using or planning to use social media to collaborate internally, engage external partners and crowdsource ideas.

Lessons for Leaders

As R&D organizations continue to globalize and pursue less-centralized decision making, the talent-allocation and collaboration challenges that many executives reported will become even more important. One thing’s for certain: Respondents are dissatisfied with how their companies are handling the issues now. Those companies that have seen improvements reported collaboration progress in several areas, including driving knowledge flows, applying online tools for collaboration and designing the work to be collaborative throughout the R&D process. Continuous and targeted knowledge sharing is an essential element for collaboration and a prerequisite for innovation success. R&D leaders should ensure that sharing new insights, lessons and best practices is an expected part of daily work activities. These leaders should also clearly define which knowledge is most important to share.

Additionally, leveraging online collaboration tools in support of knowledge sharing and virtual teaming is essential across a global R&D footprint. These technologies can be designed to integrate with work processes and improve both productivity and innovation. Lastly, we observe that the problem at times is work process. Adding new technologies on top of a poorly performing process only frustrates talented employees and unnecessarily impacts time to market. The work should be designed to be genuinely collaborative, in real time — not a linear series of functionally focused activities, punctuated by handoffs. Leaders at other companies would do well to follow the high performers’ lead: Pay as much attention to the management and communication elements of your R&D footprints as you do to your budgets and portfolios.

How Innovative is your Company culture???Many executives want their companies to be more innovative. A new assessment tool can help pinpoint your company’s innovation strengths and weaknesses.

Today’s executives want their companies to be more innovative. They consume stacks of books and articles and attend conventions and courses on innovation, hoping to discover the elixir of success. They are impressed by the ability of comparatively young companies such as Google and Facebook to create and market breakthrough products and services. And they marvel at how some older companies — Apple, IBM, Procter & Gamble, 3M and General Electric, to name a few — reinvent themselves again and again. And they wonder, “How do these great companies do it?”

After studying innovation among 759 companies based in 17 major markets, researchers Gerard J. Tellis, Jaideep C. Prabhu and Rajesh K. Chandy found that corporate culture was a much more important driver of radical innovation than labor, capital, government or national culture But for executives, that conclusion raises two more questions: First, what is an innovative corporate culture? And second, if you don’t have an innovative culture, is there any way you can build one? This article addresses both questions by offering a simple model of the key elements of an innovative culture, as well as a practical 360-degree assessment tool that managers can use to assess how conducive their organization’s culture is to innovation — and to see specific areas where their culture might be more encouraging to it.

Six Building Blocks of an Innovative Culture

An innovative culture rests on a foundation of six building blocks: resources, processes, values, behavior, climate and success. (See “The Six Building Blocks of an Innovative Culture.”) These building blocks are dynamically linked. For example, the values of the enterprise have an impact on people’s behaviors, on the climate of the workplace and on how success is defined and measured. Our culture of innovation model builds upon dozens of studies by numerous authors. (See “About the Research.”)

THE SIX BUILDING BLOCKS OF AN INNOVATIVE CULTURE

fostering innovation, enterprises have generally given substantial attention to resources, processes and the measurement of success — the more easily measured, tools-oriented innovation building blocks. But companies have often given much less attention to the harder-to-measure, people-oriented determinants of innovative culture — values, behaviors and climate. Not surprisingly, most companies have also done a better job of managing resources, processes and measurement of innovation success than they have the more people-oriented innovation building blocks. As many managers have discovered, anything that involves peoples’ values and behaviors and the climate of the workplace is more intangible and difficult to handle. As one CEO put it, “The soft stuff is the hard stuff.” Yet these difficult “people issues” have the greatest power to shape the culture of innovation and create a sustained competitive advantage.

Values

Values drive priorities and decisions, which are reflected in how a company spends its time and money. Truly innovative enterprises spend generously on being entrepreneurial, promoting creativity and encouraging continuous learning. The values of a company are less what the leaders say or what they write in the annual reports than what they do and invest in. Values manifest themselves in how people behave and spend, more than in how they speak.

Behaviors

Behaviors describe how people act in the cause of innovation. For leaders, those acts include a willingness to kill off existing products with new and better ones, to energize employees with a vivid description of the future and to cut through red tape. For employees, actions in support of innovation include doggedness in overcoming technical roadblocks, “scrounging” resources when budgets are thin and listening to customers.Climate

Climate is the tenor of workplace life. An innovative climate cultivates engagement and enthusiasm, challenges people to take risks within a safe environment, fosters learning and encourages independent thinking.2

Resources

Resources comprise three main factors: people, systems and projects. Of these, people — especially “innovation champions” — are the most critical, because they have a powerful impact on the organization’s values and climate.

Processes

Processes are the route that innovations follow as they are developed. These may include the familiar “innovation funnel” used to capture and sift through ideas or stage-gate systems for reviewing and prioritizing projects and prototyping.

Success

The success of an innovation can be captured at three levels: external, enterprise and personal. In particular, external recognition shows how well a company is regarded as being innovative by its customers and competitors, and whether an innovation has paid off financially. More generally, success reinforces the enterprise’s values, behaviors and processes, which in turn drive many subsequent actions and decisions: who will be rewarded, which people will be hired and which projects will get the green light.

About the Research

The authors have more than 30 years of executive development experience in customized training programs for large enterprises. Their teaching and consulting revolve around the topics of innovation, leadership and corporate entrepreneurship.

Our culture of innovation model builds upon dozens of studies by numerous authors. We reviewed literature in the fields of organizational dynamics, leadership, behavioral science, corporate entrepreneurship and innovation to find theoretical frameworks and models that described organizational culture and a culture of innovation.

Building Blocks at Work

While our six building blocks may seem abstract, we find that truly innovative companies always have at least one of the building blocks solidly in place.

VIDEO: Values and BehaviorsFor example, few companies better exemplify innovative values and behaviors than IDEO, the Palo Alto, California-based global design consultancy. IDEO puts a high value on productive creativity, which it links to playful behavior. And it supports both in tangible ways. Its work routines model children’s playfulness: exploration that generates many ideas; learning through hands-on building; and role playing to build empathy for users. Placards placed around the company’s workspaces proclaim IDEO’s principles for “diving deep” into problems:

Encourage wild ideas,

Defer judgment,

Build on the ideas of others,

Stay focused.

This play is just the first stage of IDEO’s innovation process. Next, its employees begin to make decisions regarding a product’s design and implementation. This range of behavior styles — from playful to businesslike — has contributed to hundreds of products that combine the best of form and function, from the computer mouse to medical equipment.3

Image courtesy of W.L. Gore

At W.L.Gore, the Delaware chemical products company famous for Gore-Tex and other high-performance products, mistakes made in the pursuit of novel solutions are accepted as part of the creative process.

W.L. Gore:

Climate Safety is an important factor in an innovative climate. A fearless workplace frees people to take the risks innovation requires. W.L. Gore, the Delaware chemical products company famous for Gore-Tex and other high-performance products, provides an instructive example of safety. Here, mistakes made in the pursuit of novel solutions are accepted as part of the creative process. When a project is killed, staff celebrate its passing with beer and champagne. When a project fails, a post-mortem is conducted. Flawed concept or poor execution? Bad decisions? The goal of these post-mortems is not to punish, but to learn and improve.4

Rite-Solutions: Processes and Success

Recognizing that they have no monopoly on brainpower or good ideas, the founders of Rite-Solutions, a Rhode Island systems and software development company, developed a process for drawing on their employees’ collective creativity.

Dozens of project ideas are listed and described in detail on the company’s internal “market.” All new listings begin trading at $10 per share. Every employee is given $10,000 of play money with which to invest, and each uses his or her judgment in allocating that money among the available “stocks.” Employees can also volunteer to work on projects they favor. Management uses their collective wisdom to make decisions on which projects will be funded. Play money is redeemed for real cash if and when a project turns into a commercial product.5 Whirlpool: Resources

A cadre of innovation experts who know, teach and implement innovative practices is one of the most important innovation resources a company can have. For decades, Whirlpool, the world’s largest appliance maker, was an engineering- and manufacturing-oriented company fixated on quality and cost. Its products were mostly commodities sold at large retailers, such as Sears and Best Buy. In 1999, the Michigan-based company embarked on a mission to be recognized as being an innovation leader as well. The company started by enlisting 75 employees from across the company to brainstorm about innovative products. The group came up with one hit product, but most ideas were viewed as too far-out or insignificant. Like many first-time innovators, people had a difficult time seeing how a more far-reaching idea could turn into an opportunity. That’s when Whirlpool decided to try a different tack.

First, every salaried employee was enrolled in a business innovation course. Second, the company trained certain employees, called I-mentors, who were similar to the Six Sigma Black Belts who worked on quality in the company. The I-mentors still kept their regular jobs but brought to those roles special training on how to facilitate innovation projects and help people with their ideas. An intranet portal offered employees a common forum for learning principles of innovation, keeping abreast of recent research and tracking the progress of ideas toward realization. Innovation teams comprised of employees from all levels of the company screened and vetted new ideas.

Two years into the program, Whirlpool had 100 business ideas, 40 concepts in experimentation and 25 products and business ideas in the prototype stage. By early 2006, Whirlpool had hundreds of ideas in the pipeline, 60 in the prototype stage and 190 being scaled for the market. By 2007, new products stemming from the innovation areas contributed nearly $2.5 billion in worldwide revenue, and approximately $4 billion of $19 billion in 2008 revenues. In 2008, Whirlpool had 61,000 employees and nearly 1,100 volunteer I-mentors worldwide who helped facilitate innovation throughout the business. Executives at Whirlpool ascribe their success in part to the way this investment in innovation and training has changed the company’s culture.

Whirlpool’s focus on resources demonstrates that a critical starting point for a deliberate, systematic and comprehensive innovation initiative begins by building a community of innovation experts. Most innovations happen within a community, and the core of any community is a common language. All disciplines — management, medicine, law — have their own lingua franca.6 So does innovation. Creating a community of innovators requires a good understanding of the language of innovation and its concepts and tools.

Assessing an Enterprise’s Innovation Culture

Each of the six building blocks in our model is composed of three factors (18 in all), and each of those factors incorporates three underlying elements (54 in all). As we move from those abstract building blocks toward more concrete elements, the innovative culture becomes more measureable and manageable — for example, the abstract building block of climate involves the factor of safety, which can be further divided into openness, integrity and trust.

After developing our building-block framework, we designed a test around these 54 elements to enable managers to assess the innovation culture of their company.7 Over the past three years, we have given the test to 1,026 managers at 15 companies, diversified by sector and geography. (See “The Building Blocks of Innovation Survey.”)

To analyze the results for an organization, we calculate an average for each question (element), the distribution of the responses for each question, an average for each factor (average of the three questions related to each factor) and finally the average for each building block (the average for the three factors related to the building block). The final average of the six building blocks represents the company’s overall score, which we call the “Innovation Quotient.”

The Innovation Quotient number can be a useful benchmark for comparing the overall level of innovation between companies, divisions and teams based in different regions. However, executives we have worked with tell us that the most important value of the Innovation Quotient assessment is its ability to rank the factors and elements that support innovation. This gives them an easy-to-understand scorecard that allows them to zero in on the strengths and weaknesses of their organization’s innovation culture.

Applying the Tool

A large, family-owned Latin American agribusiness needed to set up of a new division abroad. The company had a relatively strong executive team comprising mostly family members, who made all the decisions and drove implementation. As successful as the company had been as an exporter, however, executives realized they did not have the bench strength among their managers to undertake this new venture. They decided to use our assessment tool to find out how they could develop the creative leadership they needed to grow.

The employees who took the survey gave the company high marks on external success (which they ranked No. 1 among 18 factors) and enterprise success (No. 6 among 18 factors), but ranked the company poorly on the individual component of success, ranking it No. 16 out of 18 factors. Employees also ranked the company’s leadership poorly on engaging the rest of the workforce; the “engage” factor ranked lowest among the 18 factors. (See “Ranking Innovation Factors at a Latin American Agribusiness.”) Individual employees did not take the initiative in innovation activities (ranked No. 53 out of 54 elements), perhaps partly because the leaders did not coach and provide feedback to employees (ranked No. 50 out of 54 elements). Many employees felt that they did not have adequate support from leadership during success or failure of projects (ranked No. 46 of the 54 elements). Nor did they think the company would reward individuals for participating in potentially risky opportunities (ranked No. 51 out of 54 elements).

RANKING INNOVATION FACTORS AT A LATIN AMERICAN AGRIBUSINESS

After a healthy discussion of the survey results, the executive team set out to develop the next layer of management through management training programs coupled with delegation, coaching, support and feedback systems — and most of all, by changing their own behavior.

Everyone’s Opinion Counts

We find that people at or near the top — the individuals who make the decisions and control activities — often tend to have a much rosier view of their organization’s culture than do mid- to lower-level managers and rank-and-file employees. Executives, like everyone else, naturally think that they are doing a good job. Further, executives do not always have a complete view of enterprise reality; they simply cannot see everything that goes on.

Executives are also often at odds with their employees in terms of where they see the greatest strengths. Most executives rate their companies as being stronger in the more intangible, people-oriented building blocks (values, behaviors and climate) than in the more tangible, tool-oriented ones (resources, processes and definition of success). People lower in the enterprise often make the opposite assessment.

If given to a broad enough group, the survey can help correct for these two imbalances, by, in effect, giving 360-degree feedback to capture the insights of many and bring to light things that the bosses cannot see.Elimination of Conjecture and Barriers to Change

The bigger the organization, the more resistant the enterprise is to change.8 This trait seems to be most pronounced in multinational companies. Managers often blame poor acceptance of new strategies, sloppy implementation of enterprisewide projects and lack of standardized processes across geographies and divisions on subcultures within the enterprise.

A structured cultural assessment using something like the Innovation Quotient survey can check the veracity of such complaints. For example, a global medical device company wanted to act upon a more coordinated global operations strategy. Two years into the program, the executives and senior managers of the company spoke of big challenges due to the cultural differences between their European and U.S. operations, and also between the R&D and manufacturing groups in those two geographies. To everyone’s surprise, the assessment results found no statistical differences between the units’ responses for each of the six building blocks — suggesting that their problems were due to some other issue.

The knowledge that people in these different units thought and acted more alike than previously supposed profoundly affected the leadership group. Having lost the excuse that differing work cultures was the source of their problems, they were able to use the similarities between groups as a basis for greater collaboration.

Exposing Inconsistencies Between Thought and Action

Another useful aspect of this tool is its ability to reveal inconsistencies. For instance, we find that most senior executives rate themselves highly in terms of their desire to explore new opportunities yet do not always provide their people with the time, space or money to pursue those opportunities. Similarly, they give themselves high scores for providing the freedom to pursue new opportunities even as their subordinates describe their workplace climate as rigid and bureaucratic.

This turned out to be the core problem faced by a very large company in the U.S. entertainment industry. Employees ranked the creativity factor under the values building block very highly, but the climate within the enterprise was anything but open. Simplicity — lack of bureaucracy and rigidity — ranked at the very bottom of the 54 elements. Also, people were not given sufficient resources to conduct innovative projects. Dedicated resources for projects ranked close to the bottom: No. 53 out of 54 elements. Not surprisingly, the company had trouble innovating. As mentioned earlier, values are much less about what executives think, speak or write than about what they actually do — as measured by time, money or resources.

Pursue Change Where It’s Possible

One practical virtue of the Innovation Quotient tool is that it can be applied at any level. Even in a company with a caustic culture, local leaders can use the tool to help build islands of innovative thinking and action. By asking direct reports to respond to the 54 questions in the survey, the leader of any subunit — subsidiary, division, department or team — can determine the innovation quotient of his or her area of responsibility and begin a campaign to make positive change.

Consider the case of a U.S. subsidiary of a large European bank. The bank had a reputation as an inflexible, bureaucratic, command-and-control company. Neither its competitors nor its customers regarded it as innovative. Nevertheless, the subsidiary’s culture had some strengths. Employees felt that it was a safe climate in which they could question decisions and actions. Their executives also inspired them with a bold vision of the future. Building on those factors, the leaders of the unit were able to become visible champions of innovation, and the subsidiary managed to accomplish quite a lot within its market.

Using the Results

The survey instrument is not meant to look for balance — either among building blocks or among the factors within them. Companies that are very low on some factors but very high on others can still be successful. For instance, one very successful U.S. high-tech company rated quite low for climate but very high for the other five factors. Nor should one expect to find balance all over the company. It may be fine and even desirable if, for instance, a bank’s compliance officers are less innovative than its marketers.

Moving From Assessment to Action

After examining the survey results, management can get a clear, data-supported picture of where their culture is strong and weak and then focus on specific areas where improvement is most needed and most likely to pay off. For instance, if the survey question, “Our leaders model the right innovation behaviors for others to follow,” receives low scores from the IT group, the chief information officer may be encouraged to make some changes.

These results also provide opportunities for learning. High scores in one or more units may indicate best practices that managers in lower-performing units can emulate.

Focus on Strengths

Most executives want to immediately fix the negatives in the Innovation Quotient assessment, but we find it’s best to build on an organization’s strengths. For example, a large European insurance company that had specifically set up an internal venture unit to help it become more entrepreneurial and innovative found the new unit wasn’t accomplishing as much as it should. After administering the Innovation Quotient assessment, executives found the unit was not engaging people from different levels with its innovation initiatives. This resulted in a climate that lacked collaboration. However, the assessment showed that employees were eager to be innovative and creative. They even thought that they had the right internal champions and talent to succeed in their innovation initiatives. Understanding this, the executives concluded that they just needed to bring people in the organization together to make things start to happen.

Start Small and Scale Slowly

Managers eager to transform their cultures often try to do too much at once. A better strategy is to focus on a few things and leverage their successes into a broader transformation over time. Cultures change very slowly. When asked to participate, people often show resistance — undermining and active sabotage are common. “Show, not sell” persuasion works best in these situations, along with healthy dollops of encouragement to early adopters.

Barring an external jolt or internal crisis, it is difficult to change deep-seated beliefs and behaviors and redefine success in an instant. For best results, leaders should aim for small victories — at least at first. A practical way to begin is to ask one or two units to work on no more than three of the 54 elements. Their success should trigger a widening circle of improvement. Measurable results are more powerful than arguments, campaigns and mandates: People change when they see their peers becoming more productive, engaged and successful.

Using an innovation assessment tool such as the Innovation Quotient survey can be a first step for companies that intend to enhance their culture of innovation. In developing a plan that utilizes survey results to improve the organization’s innovation culture, companies should begin by focusing on their organizational strengths, starting small and scaling up slowly. Finally, beware of past triumphs. Over time, the strong culture of a successful organization can become a stumbling block, making the company blind to new technologies, new business models or new possible competitors emerging on the horizon. Business history is filled with examples of companies that were innovative market leaders in one generation and turned into unimaginative bureaucracies in the next.

Monday, April 29, 2013

5 Business Models That Are Driving The Circular Economy

We need to move from a system of waste to a system of reuse--an economy that’s a circle and not a line. Some businesses are getting closer to this ideal than others.

Since the Industrial Revolution, humanity’s use of natural resources has been basically the same: take, make, throw away. The World Bank’s predictions for global waste generation are chastening: on current trendsit will double between now and 2025 to 6.5 million tons of solid waste every day. For sure, we are better at using virgin resources more efficiently while second-hand markets and recycling rates have both improved. But this hasn’t altered the fundamentals. Many companies’ business models are not set up to do much else than earn money from volume. The fact that few businesses are vertically integrated makes it more difficult for businesses to reform the model for “closed” product loops even if their CEOs want to.

When you add to this the OECD’s estimate of an extra two billion middle class consumers before 2030, commodity price volatility and new environmental regulations, you start to see the scale of the challenge. The good news, though, is that circular economy thinking--building an economy that doesn’t create waste--can make business-sense.

How little business-sense does it make to discard product assets after only a few months instead of maintaining the customer relationship during multiple cycles?

It often requires product vendors to think of the resources in their products as assets rather than inputs and their customers as users rather than buyers. The question then becomes how to maximize value along the chain and, crucially, how to enable the assets to be continually re-introduced to markets. Once a material is seen as an investment and customers as users, one appreciates how little business-sense it makes to discard product assets after only a few months instead of maintaining the customer relationship during multiple cycles.

Of course, this “circular” thinking may be easier said than done. There are five fundamental considerations for nearly every sector when thinking about how make their business model more circular:

How can we design our products with asset recovery in mind?

How can we develop product lines to meet demand without wasting assets?

How can we source material in regenerative loops rather than linear flows?

How can we develop a revenue model that protects value up and down the chain, and

How can we get our customers to cooperate with us?

Complex organizations with multiple stakeholders and relationships with customers that are generally "point-of-sale" may need to change their mind set and think of themselves as service providers.

We have identified five business models that are contributing to making circular businesses a reality:

In products as services, goods vendors embrace the idea of themselves as service providers: leasing access to and not selling ownership of a service. In some cases this has led not only to an effective hedge against cost volatility but also to a stickier customer relationship and increased upsell. Vodafone’s Red-Hot plan is a good example. You can rent the latest phone for a year and keep on exchanging it for a newer version. Assuming Vodafone is engaged in collecting the old phone, not only does this act as material collection and pooling but from a business standpoint also creates deeper customer relationships.

Next life materials and products work when a company can efficiently recover and re-condition its products after use and then put the same products into the market to earn a second or third income. Tata Motors Assured is a good example here. It’s more than a second hand car dealership. Cars are handpicked and refurbished in Tata workshops and then undergo a certification process. Customers are even offered financing options and warranty.

Not all products can be reconditioned in their entirety but most products have certain components that carry a high value. Not just products, but often materials themselves have an embedded energy component that makes them even move valuable then their virgin source. With the right design and remanufacturing capabilities, they can be put together to form new products. This is product transformation. For BMW, it can mean a 50% cost saving for customers buying remanufactured parts as compared to new ones. You get exactly the same quality specifications as a new BMW part subject to the same 24-month warranty.

Not to be forgotten is that innovation in recycling technology (Recycling 2.0) is rapidly evolving and enabling production of high-quality products with fantastic sustainability performance. Starbucks, for example, is actually aiming to turn thousands of tons of its waste coffee grounds and food into everyday products by using bacteria to generate succinic acid which can then be used in a range of products from detergents to bio-plastics and medicines.

Lastly, social media exchange platforms are rapidly transforming industries by collaborative consumption. Airbnb (the online service that matches people seeking vacation rentals with hosts who have space) now has over 200,000 listings in 26,000 cities. Check out ThredUP the next time you need new clothes for your kids, you can browse like-new clothing at significant reductions from families whose children have outgrown their old clothes.

Of course, moving to a truly circular economy could require a mixture of all these five business models and a great deal of product and service innovation. Consumers and policymakers have a central role too. But what these business models demonstrate is that it is possible to rethink how we make and use things. The companies that are starting now may well define the future of sustainable business, enabling global prosperity on a crowded planet with finite resources.